The Dow and S&P closed at new highs on Monday and above their recent congestion zone. Has a breakout from consolidation finally appeared?
While the record closes came on very weak volume of only 5.38 billion shares, the weakest since January 2nd, it was still a record close. The S&P extended its record from Friday and that gives me a little hope that we could see some acceleration from here. That is still "hope" and not "confidence."
After being beaten up so badly over the last two months in the volatile range bound market I don't care which direction the market moves just as long as it is not sideways.
The weak economic reports have convinced investors, at least those still in the market, that the Fed is not going to hike in June and the market won't have its temper tantrum until July or September. The bond market may not be convinced and treasuries sold off today with yields rising +4% on the ten-year to 2.228%.
Fed head Charles Evans said on Monday he does not believe the Fed should hike until 2016 and at least one other Fed head agrees with him. That is helping convince investors that there is no imminent threat of a hike.
Option premiums for June were suddenly very skinny on both sides. Apparently nobody expects any big moves in either direction because there is no premium.
I was able to find a couple decent covered calls so with 4 weeks left until June expiration there could be some decent money available there. They are both in the biotech sector so remember there is always risk.
I was so glad the May cycle was over I wanted to stand up and cheer at Friday's close.
Send Jim an email
The fourth column in the portfolio graphic is the earnings date. We will always exit a position before that date unless specifically mentioned otherwise in the play description. For the plays where we will not exit I added the No-X designation in the portfolio.
Current Position Changes
May Expiration Cycle (Expired)
I am not going to itemize all the May positions that expired. You can look at the portfolio graphic to see the final recaps. All I can say is that I am glad May is over. Hopefully the market is in the process of establishing a direction now that the earnings cycle has passed.
NOW - Service Now (Stopped)
Shares of NOW were declining on confusing post earnings guidance but they found a bottom on Thursday and rebounded to stop us out of the short call on the spread. Hopefully shares will continue moving higher so our long call can offset the loss on the short call.
Stopped June $80 call, entry $.75, exit $1.24, -.49 loss.
Retain long June $85 call, entry .42, currently .24
HAL - Halliburton (Stopped)
The short put on Halliburton was stopped out after the Einhorn frac attack contaminated the sector and all stocks eventually fell. Oil prices also went flat at $60 and that weighed on the energy sector.
Stopped Jun $48 put, entry $1.35, exit $2.96, -1.61 loss.
GBX - Greenbrier (Stopped)
Greenbrier was moving higher on positive news until we entered the trade. Shares weakened on no news on the 12th and then dipped under $60 briefly on Friday before rebounding back to the top of its range on Monday. If it were not for bad luck we would have no luck at all.
Stopped June $55 put, entry $1.35, exit $1.40, -.05 loss.
GPRO - GoPro (Short Put)
Gopro reported good earnings and decent guidance and suggested they were close to announcing some new products. Sales were up much stronger than analysts expected. Shares Rallied from $46 to $53 and then pulled back to $47 the following week. The softness is over and shares closed at $51 today and are in a steady uptrend.
Earnings July 28th.
Sell short June $47 Put, currently .90, stop loss $48.85
OLED - Universal Display Corp (Short Put)
OLED reported good earnings and spiked from $45 to $51 before dropping back to $48 in the post earnings depression. Shares are back in an uptrend and closed at a new three-year high on Monday.
Earnings August 6th.
Sell short June $47 Put, currently .65, stop loss $48.85
New Covered Call Recommendations
SRPT - Sarepta Therapeutics
Sarepta spiked on earnings on the 7th and never gave it back. Shares closed at a 5-month high on Monday. We have played Sarepta before. Shares were punished over the last year but are finally in rebound mode again thanks to some drug news.
Earnings August 6th.
Buy-write SRPT June $17 call, currently $15.93-$1.45, stop loss $14.45
Gain if called $2.52
RDUS - Radius Health
Radius reported better than expected earnings and very positive Phase 3 results from drug abaloparatide-SC. In the trial the drug demonstrated the largest reduction ever reported in vertebral fracture risk versus placebo. In an active trial the drug resulted in more bone growth at more skeletal sites and in more patients than on "open-label" drug which is the current standard of care. Shares are rebounding to their prior resistance at $50 on this strong news.
Earnings August 5th.
Buy-write RDUS June $50 call, currently $46.63-$2.50, stop loss $43.45
Gain if called $5.87
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
KORS - Michael Kors (Bear call Spread)
APOL - Apollo Education Group (Bear call Spread)
BHP - BHP Billiton (Bear call Spread)
LGF - Lions Gate Ent (Bear call Spread)
BBY - Best Buy (Bear call Spread)
BIG - Big Lots (Bear call Spread)
WMT - Walmart (Bear call Spread)
LOW - Lowes Co (Bear call Spread)
LEN - Lennar (Bear call Spread)
RCL - Royal Caribbean (Bear call Spread)
LOW - Lowes Co -reentry (Bear call Spread)
LGF - Lions Gate Ent - reentry (Bear call Spread)
NOW - ServiceNow (Bear call Spread)
PRLB - Proto Labs (Bear call Spread)
HAL - Halliburton (Short Put)
GBX - Greenbrier (Short Put)
There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.
Here is the most common margin calculation for naked puts.
100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))
For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.